Experts
say rapid growth in the industry, which some estimates value at around $1
trillion, has put more pressure on scholars to sign off on increasingly
complicated structures, wrapped in sharia packaging.

"In
areas that have to do with capital guarantees, fixed income and derivatives ...
40 to 50 percent of what's being sent out is form over substance," said
Jawad Ali, managing partner at Dubai-based law firm King & Spalding.

Ali
said while scholars have good intentions to produce sharia-compliant products,
concerns arise when complicated structures like hedge funds and derivatives
come into play -- areas that mimic conventional products but are being touted
as sharia financing by banks and attorneys.

"Mistakes
do happen when a sharia board focuses on the instrument being presented ... and
there is little scrutiny on how the structures are being implemented," he
said.

Influential
scholar Sheikh Taqi Usmani rocked the industry last year when he said many
structures presenting themselves as Islamic didn't meet the definition of true
sharia compliance, raising concerns in the industry that some deals could be
deemed un-Islamic after investors had bought them.

Those
concerns increased when Kuwait's Investment Dar (TIDK.KW) -- which defaulted on a $100 million
sukuk last May -- presented a legal defense in the British High Court that one
of its wakala, or agency deals, wasn't sharia compliant.

VERY
PAINFULL

Such
comments are tarnishing the reputation of sharia boards, said Mohd Daud Bakar,
Islamic scholar and managing director of Amanie Islamic Finance Consultancy and
Education.

"If
any company claims deals aren't sharia compliant after they've already been
approved by their own boards, it would be very painful for the industry,"
Bakar said, adding the relationship between a sharia board and business players
structuring a deal had to be based on trust.

But
Ali said there have been violations of that trust by eager bankers and lawyers,
looking to cash in on the industry and push through a deal by any means
necessary.

"Sharia
boards can't be policemen," he said. "It's completely unreasonable to
expect a sharia board member to read every single page of a document. There has
to be a level of trust with lawyers and bankers."

Part
of the problem is the scarcity of sharia scholars -- particularly those with
business acumen -- available to oversee such transactions.

According
to a study by consulting firm Funds At Work, in the Gulf Cooperation Council
there are 755 sharia board positions in total. But 46 percent of those
positions are filled by the same 10 scholars.

The
same few experienced scholars are stretched too thin, said Harris Irfan, head
of Islamic products at Barclays Capital.

"The
scholars take their responsibilities seriously," he said. "But I have
frequently come up against bankers and lawyers that have glossed over thorny
issues that might cause a problem in sharia and hoped that scholars would just
sign off."

And
when a deal comes into question, as in the case of Investment Dar which said a
fixed return promised in its wakala deal ultimately constituted interest, it's
the sharia boards that get hit with criticism.

To
prevent such happenings, sharia scholars must take responsibility, Bakar said,
regardless of their many obligations, to pore over every page of a contract and
thoroughly understand the terms of a deal before signing it off.